Euro hits lowest level since 2025 amid energy and political crises

The euro has taken a dramatic turn in 2024, shifting from a favored currency at the start of the year to one facing record bets against it. After peaking above $1.20 in late January, the euro has since dropped to $1.116, its lowest level since May 2025. This decline is driven by two major crises: an energy shock caused by disrupted gas shipments through the Strait of Hormuz and political uncertainty surrounding France's budget.

The energy crisis has pushed the Dutch TTF gas price to €73 per megawatt-hour, a 120% increase from a year ago, while Brent crude oil has surged over 60% since the start of the year. Higher energy costs have contributed to a rise in Eurozone inflation to 3.8% in September, up from 3.2% in August. Despite this, the European Central Bank (ECB) has signaled a cautious approach to rate hikes, dampening investor confidence in the euro.

The French budget crisis has further weakened the euro, as investors demand higher returns to lend to France compared to Germany. The gap between the two countries' 10-year borrowing costs has widened to 1.4 percentage points, the highest since the eurozone debt crisis of 2011-2012. ECB President Christine Lagarde's remarks have added to the uncertainty, as markets now expect fewer rate hikes than previously anticipated.

Speculative traders have taken record short positions against the euro, with 301,439 short contracts held in late September, totaling about €38 billion. Analysts are divided on how much further the euro could fall, with some predicting it could drop to $1.100 if bond market stress intensifies, while others believe the selling has gone too far and a rebound may be possible.